Xi Jinping meeting with Narendra Modi in the southern Indian city of Chennai in Oct. 2019
Ajai Shukla

-Analysis-

NEW DELHI — It was mid-September 2014, India was abuzz with the visit of Chinese president, Xi Jinping and his wife, folk singer Peng Liyuan. Televisions channels played an extended video loop of Prime Minister Narendra Modi sitting on a swing with Xi on the banks of the Sabarmati River, while excited anchors foretold an era of Sino-Indian peace, forged between the two strongmen who had come to power within two years of each other.

Six years later, the Modi-Xi relationship lies in tatters, as do ties between New Delhi and Beijing. With Chinese soldiers having marched across the Line of Actual Control (LAC) in May, and occupied territory that the Indian army has traditionally controlled and patrolled, many Indians now see Xi and China as not just adversaries, but as implacable foes.

For the ruling Bharatiya Janata Party (BJP), Modi's failure to befriend Xi, or to achieve the holy grail of a border settlement, constitutes a huge political embarrassment. There has been no movement on a boundary settlement since 2005, when China consented to sign off on a set of "political parameters' that would govern the final solution. Now the opposition is painting Modi as a trusting simpleton who has been duped by the cunning Chinese leader.

The optimism around Xi's visit was, in fact, quite evidently misplaced. Even as Modi poured tea for Xi in Ahmedabad, Beijing was testing the Indian Prime Minister by sending 1,000 troops across the LAC in Chumar, in Southern Ladakh.

According to India's foreign ministry, Modi sternly told Xi that such incidents would inevitably affect the larger relationship. With the the Chinese army's withdrawal from Chumar, the Indian leader continued believing his parity with Xi could result in the resolution of Sino-Indian disharmony.

In May 2015, during his three-day visit to China, Modi pressed Xi again on the border question when they met in Xi'an. Officials familiar with the conversation say Xi did not even respond. Instead, in Beijing the next day, Chinese Premier Li Keqiang delivered Modi a lecture featuring Beijing's boilerplate formulation that the border question was a "complex issue left over from history" and that solving it required "patience."

Through 2015 and 2016, Modi was preoccupied with his growing embrace of the US. In January 2015, President Barack Obama and Modi signed a "Joint Strategic Vision for the Asia-Pacific and Indian Ocean Region." Other deals were inked between New Delhi and Washington, with the U.S. also strongly backed New Delhi's entry into the four global non-proliferation agreements: the Missile Technology Control Regime, the Australia Group, the Wassenaar Arrangement and the Nuclear Suppliers Group (NSG).

The Chinese leader perceived a perfect opportunity.

A fuming Beijing signaled its displeasure. China blocked India's candidature for NSG membership and placed a "technical hold" on the designation of Pakistan-based Jaish-e-Mohammed leader Masood Azhar as a global terrorist in the United Nations. The estrangement gathered momentum with New Delhi's refusal in 2017 to participate in the Belt and Road Initiative (BRI) – China's flagship infrastructure building project.

The subterranean tussle between Modi and Xi came to a head in Doklam in 2017, when Indian troops intervened in territory that is disputed between China and Bhutan to block China's road-building project for 73 tense days. The exceptionally aggressive messaging from China during the crisis suggests that Xi himself assumed control of events at some stage of the confrontation.

"That was a clear message from China's top leader," says a top Indian official, now retired, who served in the Prime Minister's Office. "Xi was telling Modi that you cannot prevent China from taking what we think is ours."

Modi got the message and signed a truce at Wuhan in April 2018. Following that, New Delhi implemented measures to placate Xi, including reining in the Tibetan diaspora. A former foreign secretary, speaking on condition of anonymity, believes that this evidence of Modi's weakness only whetted Xi's appetite. The Chinese leader concluded that he was succeeding in establishing psychological dominance over his Indian counterpart.

Narendra Modi with Barack Obama during the ASEAN gala dinner in 2016 — Photo: Pete Souza/The White House/ZUMA

The Chinese leader perceived a perfect opportunity in the circumstances prevailing in April: a raging COVID-19 pandemic, New Delhi's weakened position in the sub-continent, India's unprecedented economic slowdown and America's inward preoccupation with the bruising 2020 election battle.

"Besides affirming his (dominance) over Modi, Xi was also have aiming to show Washington that its putative regional partner could not even safeguard its territory from China. Finally, Xi also wanted to show regional countries India's subordinate place," says the former official in the prime minister's office.

That Modi is confused and browbeaten became evident after the killing of 20 Indian soldiers in June, when he denied any Chinese intrusions into Indian territory. His statement implied that none of the territory the PLA had occupied belonged to India, and also that the Indian soldiers were killed on Chinese territory.

The Chinese media quickly picked up this theme. "Modi's remarks will be very helpful to ease the tensions because, as the Prime Minister of India, he has removed the moral basis for hardliners to further accuse China" said Lin Minwang of Fudan University in Global Times article.

A former Indian foreign secretary who did not want to be named said that with Modi's failure to show "visible leadership in a national crisis, Xi seems to have won."

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Economy

European Debt? The First Question For Merkel's Successor

Across southern Europe, all eyes are on the German elections, as they hope a change of government might bring about reforms to the EU Stability Pact.

Angela Merkel at a campaign event of CDU party, Stralsund, Sep 2021

Tobias Kaiser, Virginia Kirst, Martina Meister


-Analysis-

BERLIN — Finance Minister Olaf Scholz (SPD) is the front-runner, according to recent polls, to become Germany's next chancellor. Little wonder then that he's attracting attention not just within the country, but from neighbors across Europe who are watching and listening to his every word.

That was certainly the case this past weekend in Brdo, Slovenia, where the minister met with his European counterparts. And of particular interest for those in attendance is where Scholz stands on the issue of debt-rule reform for the eurozone, a subject that is expected to be hotly debated among EU members in the coming months.

France, which holds its own elections early next year, has already made its position clear. "When it comes to the Stability and Growth Pact, we need new rules," said Bruno Le Maire, France's minister of the economy and finance, at the meeting in Slovenia. "We need simpler rules that take the economic reality into account. That is what France will be arguing for in the coming weeks."

The economic reality for eurozone countries is an average national debt of 100% of GDP. Only Luxemburg is currently meeting the two central requirements of the Maastricht Treaty: That national debt must be less than 60% of GDP and the deficit should be no more than 3%. For the moment, these rules have been set aside due to the coronavirus crisis, but next year national leaders must decide how to go forward and whether the rules should be reinstated in 2023.

Europe's north-south divide lives on

The debate looks set to be intense. Fiscally conservative countries, above all Austria and the Netherlands, are against relaxing the rules as they recently made very clear in a joint position paper on the subject. In contrast, southern European countries that are dealing with high levels of national debt believe that now is the moment to relax the rules.

Those governments are calling for countries to be given more freedom over their levels of national debt so that the economy, which is recovering remarkably quickly thanks to coronavirus spending and the European Central Bank's relaxation of its fiscal policy, can continue to grow.

Despite its clear stance on the issue, Paris hasn't yet gone on the offensive.

The rules must be "adapted to fit the new reality," said Spanish Finance Minister Nadia Calviño in Brdo. She says the eurozone needs "new rules that work." Her Belgian counterpart agreed. The national debts in both countries currently stand at over 100% of GDP. The same is true of France, Italy, Portugal, Greece and Cyprus.

Officials there will be keeping a close eye on the German elections — and the subsequent coalition negotiations. Along with France, Germany still sets the tone in the EU, and Berlin's stance on the brewing conflict will depend largely on what the coalition government looks like.

A key question is which party Germany's next finance minister comes from. In their election campaign, the Greens have called for the debt rules to be revised so that in the future they support rather than hinder public investment. The FDP, however, wants to reinstate the Maastricht Treaty rules exactly as they were and ensure they are more strictly enforced than before.

This demand is unlikely to gain traction at the EU level because too many countries would still be breaking the rules for years to come. There is already a consensus that they should be reformed; what is still at stake is how far these reforms should go.

Mario Draghi on stage in Bologna

Prime Minister Mario Draghi at an event in Bologna, Italy — Photo: Brancolini/ROPI/ZUMA

Time for Draghi to step up?

Despite its clear stance on the issue, Paris hasn't yet gone on the offensive. That having been said, starting in January, France will take over the presidency of the EU Council for a period that will coincide with its presidential election campaign. And it's likely that Macron's main rival, right-wing populist Marine Le Pen, will put the reforms front and center, especially since she has long argued against Germany and in favor of more freedom.

Rome is putting its faith in the negotiating skills of Prime Minister Mario Draghi, a former head of the European Central Bank. Draghi is a respected EU finance expert at the debating table and can be of great service to Italy precisely at a moment when Merkel's departure may see Germany represented by a politician with less experience at these kinds of drawn-out summits, where discussions go on long into the night.

The Stability and Growth pact may survive unscathed.

Regardless of how heated the debates turn out to be, the Stability and Growth Pact may well survive the conflict unscathed, as its symbolic value may make revising the agreement itself practically impossible. Instead, the aim will be to rewrite the rules that govern how the Pact should be interpreted: regulations, in other words, about how the deficit and national debt should be calculated.

One possible change would be to allow future borrowing for environmental investments to be discounted. France is not alone in calling for that. European Commissioner for Economy Paolo Gentiloni has also added his voice.

The European Commission is assuming that the debate may drag on for some time. The rules — set aside during the pandemic — are supposed to come into force again at the start of 2023.

The Commission is already preparing for the possibility that they could be reactivated without any reforms. They are investigating how the flexibility that has already been built into the debt laws could be used to ensure that a large swathe of eurozone countries don't automatically find themselves contravening them, representatives explained.

The Commission will present its recommendations for reforms, which will serve as a basis for the countries' negotiations, in December. By that point, the results of the German elections will be known, as well as possibly the coalition negotiations. And we might have a clearer idea of how intense the fight over Europe's debt rules could become — and whether the hopes of the southern countries could become reality.

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